Leading Your Financial Life from Strength

It's always interesting to me how "When the student is ready, the teacher appears" applies over and over again to life. It's not literally true. Because the teachers are all around us at all times. What changes is our perceptions of the world.

Said another way, there is the Baader-Meinhof phenomenon: https://science.howstuffworks.com/life/inside-the-mind/human-brain/baader-meinhof-phenomenon.htm like when you start to see license plates from the state you are going to move to.

@clayboyn posted this in the PAL server's crypto trading room:

So what does all that have to do with leading your life from a position of strength?

In short, everything.

Most people are flat broke. All their income goes right back out the door.

Most of the rest are cash flow negative as their liabilities grow faster than their assets.

Very, very few people have built a strong financial foundation.

Imagine for a second that you have arranged your life in such a way that almost no matter what happens, you will be able to continue living where you live, eating, paying utilities, providing for your family, clothing your children, etc etc.

Would you keep working where you work? Would you be party to those small, slightly unethical, look-the-other-way kind of actions?

Would you put up with bullshit if you didn't need that money?

So much misery comes from that weakness of needing a check at the end of the week. When you develop your financial strength and evolve beyond the need for hand outs, you can tell those people to go fuck themselves if that is what's needed.

Why to Build Financial Strength

If you've been around the investing world for any length of time, you will find many instances of the hero's journey. They range in type from John Templeton (buy everything under $1) to Warren Buffet (hold a stock forever) to the snapchat guy who sold for a couple billion in 2 years.

There are two problems with this trope. One, these are outliers and remarkable stories for a reason. Two, the success of a business has nothing to do with your individual financial strength.

If you want to follow the Templeton model of buying up companies at deeply discounted prices after a crash, that's great. Where are you going to get the money to do the buying?

If you want to build the next snapchat, super. Where are you going to get the money for development, advertising, and operations?

Where are you building your personal capital?

The How

The how is simple, but not easy. How complicated is saving?

Whatever money you are making, you have to spend less than that. Ideally a lot less. People talk about saving 10%, but that's really not enough. 20% is sort of a bare minimum to get anywhere in a reasonable amount of time. And I know, I know, it's difficult. Simple yes, easy no. Start where you are, and improve when you can.

Being a financial guy, I always think in terms of accounting statements like profit and loss statements and balance sheets. To improve your profits, you can increase income, decrease expenses, or both. I recommend both.

Savings form the foundation of your finances. The yield is virtually nothing, and that's OK. Rate of return isn't all it's cracked up to be. 6 to 12 months of living expenses is your Tier 1 capital.

Just getting to this point puts you ahead of 90% of people in the world. If you have a year's worth of cash saved, think about how that frees your mind. Your worries that were clouding your vision evaporate and now you begin to see those teachers and opportunities all around you.

Tier 2 starts to get very individualized very quickly. You might need to pay down debt. You might want to buy gold. You might want to take some classes that will help with your next business idea. Whatever the case, Tier 2 is defined by a high degree of personal control. What you do matters for the value of Tier 2.

Tier 3 is where you start to develop assets that pay you. The common forms at Tier 3 are real estate, dividend stocks, bonds, solid passive businesses, and high quality loans. If you develop Tier 3 to the point of taking care of your personal expenses, you are financially free. This puts you in the 99th percentile of financial strength.

Tier 4 is the speculative stage. This is where you can afford to change the world through your money. This is true FU money.

For another view on the same kind of topic, check out Exter's pyramid:

https://en.wikipedia.org/wiki/John_Exter#Exter's_Pyramid

But, but, but!

But what about my vision for revolutionizing [insert industry here]?

Nothing conflicting here. There is a difference between your personal financial foundation and your business idea. You can develop your [whatever]-killer at the same time as you develop your own money.

But I can't save 20%!

Start where you are, and improve when you can.

But you don't understand my personal situation!

That's true. I don't. What I do know is that most people live their lives in weakness. I did so for many years as well. Being strong makes all the difference in the world, whatever your circumstances.

But crypto is going to the m00n!

Maybe. The BTC early adopters made out like bandits. It's pretty rare to catch a rocket ship at lift off though. Chances are, both you and I will miss the 10,000,000% gains.

But [insert random objection here]!

Don't care. I have financial strength. (See how that works?)

One Other Thing...

Oh, and by the way, all of this applies to other kinds of strength as well like physical, emotional, and spiritual strength.